In '97 I exercised some stock options (non-qualified stock option plan) which I had received from my employer. Since I sold the same day as I exercised the options, it was treated as regular income. The gross proceeds were added to my year-to-date income; federal income taxes and FICA taxes were also withheld and their amounts added to year-to-date totals. I received a one-page statement detailing the numbers in the transaction.

My W-2 for '97 includes this option money in the "Wages" amount; however, I also received a 1099-B form which shows the total sales price of the shares, and shows zero federal income tax withheld -- no other amounts.

It seems clear to me that the money was treated as regular income and included in my W-2 amount. What I don't understand, then, is why did I get a 1099-B form to file with my taxes? Can anyone explain how this form is supposed to be used to report the transaction without the IRS considering it additional capital gains income?

I appreciate your help on this.

JJ